Friday, July 17, 2009

Recessions and Cavemen


From the Associated Press:

"Recession 101" billboards started popping up this month on Interstate 95 in Rhode Island, which has one of the nation's highest unemployment rates. One billboard's message is: "Interesting thing about recessions...they end." The project is funded by an anonymous donor who was depressed about the country's reaction to the meltdown. The billboard designer says his client wants people to realize we've made it through recessions before.

Now I hate to burst any one's bubble of delusion, even though it seems that's something I've devoted the latter half of my life to, but recessions do not have to end. Recessions are a lot like fires. When our cavemen ancestors first learned to harness fire for their use, they learned that to keep a fire going they needed to keep adding fuel. If they wanted a fire to burn all the way through a cold winter's night then they needed to store up sufficient fuel, usually wood, the day before. If they no longer needed the fire then they would just stop throwing on the wood and it would go out.

Recessions will, like fires, continue to "burn" as long as they have fuel and the most popular form of fuel for recessions is government interference in the Free-market. Recessions are generally defined as periods of mass unemployment that feed upon themselves. The unemployed have less demand for consumer goods and less demand leads to lay offs of those employed to produce, transport, and merchandise the consumer goods which will lead to more unemployment and the cycle repeats itself. Government interferes in the market by artificially increasing the costs of labor above the market price.

I've already touched once before on how the Minimum Wage Law affects unemployment but now our government wants to force employers, who might be struggling to cover their payroll expense as it is, to purchase medical insurance for all of their employees or be fined at an amount equal to the cost of the insurance to help the government "purchase" insurance for these employees. Once again, and as sure as gravity, if one increases the cost of a commodity, in this case labor, then those who are wanting to buy it will be more choosier about what they purchase and how much, which will lead to less being bought and more unemployment.

The strangest twist in the ironic history of employer-supplied medical insurance was that it came about because of another faulty government program in the past. During the reign of FDR, there was a time that employers were prohibited from giving raises or offering potential new employees higher wages than they were making with their current employer. In order to entice good employees to stay or to come to work for them, employers started offering paid vacations, sick leave, and free medical insurance as fringe and non-taxable benefits. Times have changed as now some in Congress are considering taxing these benefits at the same time that others consider what used to be a reward for good work and high productivity as a human right.

The best way to end a recession is to take away the fuel that it burns and that means less government interference and letting market forces and human choice work out the contracts between employers and employees. That might just be too easy a concept for the members of Congress and the current administration to grasp. But I'm willing to bet that it's so easy (my apologies to Geico Insurance) that a Caveman could do it...

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